Question

Part 2: Carryback and Carryforward

The pretax financial income (or loss) figures for Bryan Clark Company are as follows.

2016	$ 88,000
2017	137,500
2018	44,000
2019	(88,000)
2020	(191,900)
2021	66,000
2022	55,000

Pretax financial income (or loss) and taxable income (loss) were the same for all years involved. Assume a 45% tax rate for 2016 and 2017 and a 25% tax rate for the remaining years.

Prepare the journal entries for the years 2015–2019 to record income tax expense and the effects of the net operating loss carrybacks and carryforwards assuming Bryan Clark Company uses the carryback provision.

• All income and losses relate to normal operations. (In recording the benefits of a loss carryforward, assume that no valuation account is deemed necessary.)

Answer 1

Solution:

Bryan Clark
Journal Entries
Date	Particulars	Debit	Credit
31-Dec-16	Income tax expense Dr	$39,600.00
	To Income Tax Payable		$39,600.00
	(To record income tax for 2016)
31-Dec-17	Income tax expense Dr	$61,875.00
	To Income Tax Payable		$61,875.00
	(To record income tax for 2017)
31-Dec-18	Income tax expense Dr	$11,000.00
	To Income Tax Payable		$11,000.00
	(To record income tax for 2018)
31-Dec-19	Receivables - Income tax refund Dr	$39,600.00
	To Income Tax benefit - Net operating loss		$39,600.00
	(Being loss of 2019 carried back to 2017)

Note: As details of year 2015 not available in question, therefore journal entries are prepared from 2016 to 2019.